Nifty PSU Bank index dips below 200-DMA after more than 2 years; what next?

The PSU Bank index had zoomed 200% to a high of 8,053 after breaking above its 200-DMA in July 2022. At present, most PSU Bank stocks, barring SBI, are trading below this long-term moving average.

Following a sharp 3.5 per cent slump on Friday, the Nifty PSU Bank index was seen trading with a loss of another 1 per cent in trades on Monday at 6,580 levels. 

Among the constituents, Union Bank of India was the major loser - down almost 3 per cent. Bank of India, PSB, Uco Bank and Central Bank of India were the other major losers, down over 2 per cent each. The recent sell-off in PSU banking stocks was triggered by a ratings downgrade by foreign brokerage firm - Goldman Sachs.

More importantly, the Nifty PSU Bank index was see quoting below its 200-DMA (Daily Moving Average) for the second straight day. The PSU Bank index is seen below this long-term moving average after a gap of over 2 years. The index had conquered the 200-DMA on July 18, 2022; thereafter the index went on to touch an all-time high at 8,053 - on June 03, 2024 - up 200 per cent from the breakout point (2,685). At present, the 200-DMA stands at 6,738.

 

Technically, the 200-DMA is considered as a key indicator in determining the overall long-term trend of the stock or index. Stocks trading above this long-term moving average are considered as bullish; whereas, those below the 200-DMA as bearish.

For a trend confirmation, the stock or the underlying index needs to close below this long-term moving average for at least three or more trading sessions. As such, the next few trading sessions will be crucial for the PSU Bank index. 

Can the index stage a rebound or will the slide continue? Here's what the chart suggests:

Nifty PSU Bank Index

Current Level: 6,580

Downside Risk: 19%

Support: 6,535; 6,380

Resistance: 6,665; 6,738; 6,900; 7,100

The Nifty PSU Bank index is not only treading below its 200-DMA, but also the lower-end of the Bollinger Bands. This clearly indicates an upper hand for the bears as long as the index remains below 6,665 levels; above which the key hurdle will be the 200-DMA at 6,738. CLICK HERE FOR THE CHART

On the weekly scale, the index is seen testing support at its 20-WMA (Weekly Moving Average) - again another key moving average that the stock has honoured since July 2022. The 20-WMA support stands at 6,535; below which immediate support for the index is seen at 6,380 levels.

Break and sustained trade below 6,380 shall open the doors for a steeper fall. The long-term chart suggests a possible slide towards 5,330 levels; with interim support at 5,665 levels - this implies a downside risk of 19 per cent and 14 per cent, respectively.

At present levels, the Nifty PSU Bank index has already shed over 18 per cent from its all-time high registered in June 2024.

On the contrary, in case, the Nifty PSU Bank index is able to withstand the current selling pressure and seek support near the immediate levels; the index may stage an interim recovery towards 7,100 levels; with resistance likely around 6,900.

PSU Bank stocks

Meanwhile, a vast majority of the PSU Bank stocks are trading below their respective 200-DMAs, with Union Bank as the key laggard. The stock is down almost 12 when compared with its 200-DMA.

 

Similarly, Bank of India, Uco Bank and Punjab National Bank are down in the range of 6 - 9 per cent each. On the positive front, index heavyweight and the stock of largest state-run bank - SBI is seen holding above its 200-DMA, with a gap of near 4 per cent.